Exchange-rate volatility in China and its impact on foreign trade

This paper investigates empirically the impact of real exchange-rate volatility on the trade flows of China over the quarterly period 1994-2005. Estimates of the cointegrating relations are obtained using different cointegration techniques. The major results show that depreciation of exchange rate affected Chinese export weakly. Chinese export is mainly affected by real GDP and price of trade partner. At the same time, depreciation of exchange rate affected Chinese import weakly. Chinese import is mainly affected by domestic real GDP and price of trade partner and China.